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Thread: Tax Credit & SITE Tax

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    Question Tax Credit & SITE Tax

    Good Day,

    Does anyone know about a place that can answer my questions regarding the Medical Tax credit and how and what SITE tax is.

    How does the medical tax credit work?
    Is SITE tax an additional tax, do you display it on your employess pasyslips, and how do you calculate it for the IRP5's.

    The SARS website is not very usefull.

    Thank You

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    Platinum Member Mike C's Avatar
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    What is SITE?
    In order to obtain a clear understanding of the concept of SITE, the following must be borne in mind:
    • SITE is not an additional tax - it is simply a procedure whereby an employer classifies a certain amount of employees' tax as a minimum for final tax. Whenever an employer is required to issue an IRP5, it is necessary to identify the SITE portion of employees' tax withheld.
    • SITE constitutes either a final or a minimum liability for tax which is generally not refundable. However, the South African Revenue Services is empowered to make refunds in certain specified circumstances.
    • SITE is not related to a full year of assessment but rather to a "tax period" which may be a twelve-month or shorter period.
    • However, where an employee with no other income works say, for only two months of the year, his/her "net remuneration" for that tax period is annualized or grossed up to an "annual equivalent" in order for the SITE liability to be determined by the employer.
    • For all employees whose net remuneration does not exceed R60 000, SITE is calculated in terms of the statutory tax deduction tables less any rebate to which the employee is entitled.
    2. Who is subject to SITE?
    (a) All employees, no matter how much they earn, are subject to SITE. An employee's SITE liability is determined with regard to the net remuneration (or the annual equivalent thereof) received by the employee. Should an employee earn an amount in excess of the SITE limits then the SITE portion of the amounts withheld must be identified. The balance of the amount withheld is regarded as PAYE.
    (b) The significance of the separate identification of SITE and PAYE is that SITE is not generally refundable.
    (c) All natural taxpayers whose net remuneration or the annual equivalent thereof does not exceed R60 000 will be subject to SITE only, provided they have not derived any other taxable income during the year of assessment.

    3. How does SITE affect the employee?
    (a) The employee is not required to submit an income tax return if his or her income consists solely of net remuneration which is subject to SITE only.
    (b) Where an employee's tax deductions consist solely of SITE, and he/she derived no other taxable income, such SITE will be the final tax liability. In some cases, combined net remuneration may exceed R60 000. E.g. where the employee's only income consists of a salary of R39 000 (for the full year) and a pension of R35 000 (for the full year), both such amounts being subject to SITE only, the final tax liability will be the SITE deducted. In other words, the two amounts are not combined for tax purposes and the employee need not render a return.
    (c) A taxpayer who earns any taxable income not subject to SITE must render a tax return if he/she receives income above the minimum tax thresholds.
    (d) Where an employee earns net remuneration (subject to SITE only) and suffers a loss from another trade, the loss will not reduce the SITE liability but will reduce the taxable income on assessment.
    An education isn't how much you have committed to memory, or even how much you know. It's being able to differentiate between what you do know and what you don't. - Anatole France

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    AntoinetteT3 (21-Jun-12), Dave A (22-Jun-12)

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    Platinum Member Mike C's Avatar
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    Some info on the Medical Aid Tax Credits - Taken from the Pastel Payroll Website

    Employees will now benefit equally from the new medical aid tax credit system that replaces the current capping system, effective 01 March 2012.

    The benefit is mostly to employees whose earnings will fall within the lower income brackets as the medical aid capped amounts, deducted before calculating PAYE, were subject to the marginal income tax rate of an employee while the tax credit is applied after calculating PAYE.

    Let’s make use of an example to illustrate how the medical aid tax credit brings equality to the income tax system.

    John earns R10 000 per month and contributes R1000 towards his medical aid. John is 27 years old, single with no children.

    Currently, John will qualify for a R720 medical aid cap that is applied as a deduction against his salary of R10 000, which means his PAYE will be calculated on R9280. John’s total annual remuneration value puts him in the lowest earnings bracket which means his marginal tax rate is 18%. John will receive only 18% of his R720 medical aid cap as a reduction in his PAYE, therefore his PAYE will be reduced by R130 because of his medical aid contribution. On the new tax credit system, John will enjoy a R230 reduction in his PAYE – this means an additional R100 in his pocket each month!

    Mary earns R25 000 per month and contributes R1000 towards her medical aid. She is 25 years old, single with no children.

    Mary qualifies for a R720 medical aid cap which means her PAYE will be calculated on R24 280. Her total annual remuneration will be subject to a marginal tax rate of 30% which means Mary’s PAYE will be reduced by R216 because of her medical aid contribution. She receives 30% of the R720 medical aid cap as a reduction in PAYE.

    You can see how the current medical aid capping system can be seen as unfair – although both John and Mary contribute the same amount towards their respective medical aids, Mary enjoys a greater benefit because her earnings are higher. From 01 March 2012, they will both receive the same reduction of R230 in their PAYE liability, regardless of their earnings.

    Remember to apply the new Medical Aid Tax Credit calculation on the first payslips you process for March 2012.
    An education isn't how much you have committed to memory, or even how much you know. It's being able to differentiate between what you do know and what you don't. - Anatole France

  5. Thanks given for this post:

    Dave A (22-Jun-12)

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